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Commercial insurance coverage for home care businesses

This issue of Home Care Briefing provides answers to common questions asked by home care providers about commercial insurance coverage. For additional guidance in regard to specific needs and circumstances, we recommend you consult an insurance professional.

1. Hired and Non-owned Automobile Liability (HNOA) Coverage

Let us say a caregiver is transporting a client to a physician’s appointment. During the ride, a collision occurs, causing injury to the client as well as property damage. Whose auto policy would be primary for this accident?

Hired automobile liability insurance applies to bodily injury or property damage arising out of the maintenance or use of a hired auto by you (the franchise owner or policyholder) or your employees in the course of your business. Typically, you have liability coverage for automobiles that you or your employees rent on business, but you are not covered for physical damage to the rented vehicle itself.

Non-owned automobile liability applies to bodily injury or property damage arising out of the use of any non-owned auto in your business by anyone other than you. Employees’ and clients’ vehicles are considered non-owned automobiles when used for business purposes. This policy, intended to protect the employer, would be in excess of the employee’s personal auto liability limit. The employee’s own personal insurance would be the full extent of protection for him or her.

The following chart illustrates the order of insurance applicability in the event of an accident, assuming that the caregiver driving was at fault.

Caregiver driving own car: Caregiver driving client’s car:
Client injured 1st: Caregiver’s personal insurance
2nd: Franchisee’s HNOA insurance
Client
Injured
1st: Client’s personal insurance
2nd: Caregiver’s personal insurance
3rd: Franchisee’s HNOA insurance
Caregiver injured Franchisee’s workers’ compensation insurance Caregiver injured Franchisee’s workers’ compensation insurance
Third party injured 1st: Caregiver’s personal insurance
2nd: Franchisee’s HNOA insurance
Third party injured 1st: Client’s personal insurance
2nd: Caregiver’s personal insurance
3rd: Franchisee’s HNOA insurance
Vehicle damage only Caregiver’s personal insurance Vehicle damage only Client’s personal insurance

 

2. Dishonest Acts Exclusion

What constitutes a dishonest act in regard to insurance coverage?

Dishonest acts are actions committed by an employee with the intent to cause you to sustain a loss and to obtain financial benefit for him or herself (or any other person or organization intended by the employee to receive such benefit) other than salaries, commissions, fees and bonuses earned in the normal course of business. Examples of dishonest acts include, but are not limited to, misappropriation of funds, forgery, falsification of reports or receiving compensation for hours not worked.

If questions arise regarding coverage for a potential dishonest act, consult with a broker, who can assist in reviewing relevant insurance policy provisions.

 

3. Admitted Versus Non-admitted Paper

The organization has been offered coverage on both admitted and non-admitted paper. What is the difference, and what is the best option?

Admitted carriers are also known as authorized or licensed insurers. Such carriers must file their forms and rates with the state insurance department, and can utilize only approved forms. As admitted carriers make contributions to the state insurance guaranty association, in the event the admitted carrier becomes insolvent, the state guaranty association will assist in paying policyholders’ claims up to state-specified limits.

Non-admitted carriers, also known as surplus lines carriers or unlicensed/unauthorized carriers, are not required to file their policy forms and rates with the state insurance department. Non-admitted forms may offer more flexibility, permitting the underwriter to provide broader coverage or fill in potential gaps. However, since non-admitted carriers do not contribute to the state guaranty association, they are not backed by the guaranty association if the firm becomes insolvent.

A common misconception is that non-admitted companies are necessarily riskier to do business with. When it comes to choosing an insurance company, the firm’s financial strength is the most important factor to consider. To assess the financial stability of an insurance carrier, check its AM Best Company rating.

 

4. Claims-made Versus Occurrence Coverage

What is the difference between a claims-made and an occurrence professional liability policy?

An occurrence policy provides coverage for claims resulting from incidents that occurred during the policy period, regardless of when the claim is reported. For example, suppose you purchased a policy from January 1, 2012 to January 1, 2013 and chose not to renew it upon expiration. If a claim was brought against your business in 2014 for an incident that occurred during 2012, the policy would respond to the claim.

A claims-made policy provides coverage for those claims resulting from incidents that occurred on or after the prior acts date and are reported while the insurance is in force or when an extended reporting period applies.* For example, suppose you purchased a policy from January 1, 2012 to January 1, 2013 and chose not to renew it upon expiration. If a claim was brought against your business in 2014 for an incident that occurred during 2012, you would not be covered unless you had purchased an extended reporting period.

Neither type of coverage is inherently superior. Rather, selecting the right professional liability policy for your business requires careful evaluation of specific needs and exposures, as well as awareness of coverage types and policy options.

Every home care provider requires adequate and appropriate insurance coverage. Before purchasing a policy for your business, discuss available options with your broker.

 

*A prior acts date is the date on or after which an incident must occur to be covered under the policy. The prior acts date is typically the inception date of the original claims-made policy. (Note: When renewing a claims-made policy or moving coverage to a new carrier, it is advisable to obtain prior acts coverage equal to the expiring policy’s level of coverage, in order to maintain consistency and eliminate coverage gaps.) Extended reporting period (often referred to as “tail coverage”) is a defined period following a policy’s expiration date, during which the insured can report claim events that occurred before the policy’s expiration.

 

The information, examples and suggestions presented in this material have been developed from sources believed to be reliable, but they should not be construed as legal or other professional advice. CNA accepts no responsibility for the accuracy or completeness of this material and recommends the consultation with competent legal counsel and/or other professional advisors before applying this material in any particular factual situations. This material is for illustrative purposes and is not intended to constitute a contract. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. Use of the term “partnership” and/or “partner” should not be construed to represent a legally binding partnership. CNA is a registered trademark of CNA Financial Corporation. Copyright ©2010 CNA. All rights reserved.